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10 Things To Keep In Mind While Creating A PTO Policy

As the modern business landscape changes and shifts, companies are exploring new ways to one-up their competition and remain relevant in the business world. Although companies recognize the need for talented employees and talents in the job force seeking employers that offer more than just competitive salaries, they are quickly running out of creative ways to attract and retain employees. However, one helpful tool that has proven to be a valuable incentive for luring talents is an attractive PTO policy.

In a time where mental health and work-life balance are at the top of employee needs, PTO is proving to be one of the most significant benefits a company can offer its workers. However, setting up and maximizing PTOs to benefit the employer and the company requires an adequate policy. This policy will guide every decision concerning PTOs, including enlightening employees about everything they need to know about requesting paid leaves. But how exactly do you set up an effective PTO policy? More importantly, what must you keep in mind while creating your unique company PTO Policy?

In this article, we offer ten things you need to keep in mind when creating and implementing a clear PTO policy for your employees and the success of your business.

What Is A PTO?

Paid time off is a benefit program created by companies to help employees enjoy a specific number of days off from work without forgoing pay. With this program, employees can legally take leaves and still receive financial compensation from their employers.

PTOs generally include absences related to a vacation, sickness, grief, birth, military leave, or even jury duty. Also known as personal time off, PTOs provide employees with bankable hours to leave work for any purpose. This allows employees to attend private events and a temporary break from the usual daily grind they are exposed to in their workplace.

With attention in the business world now more than ever before focusing on the need for employee well-being and health, the need for effective PTO programs and policies is becoming more pressing. Without an effective PTO program, employees will be left constantly burnt out and stressed, a problem that will sooner or later impair their engagement and productivity at work or lead to quiet quitting.

PTOs solve this problem by ensuring employees get enough time to attend to personal concerns. Employees can enjoy a better work-life balance and better well-being, helping them to have a more fulfilled personal and professional life.

Picture of a printed document
PTO policies detail every element involved in applying for and approving paid time off.

Creating A PTO Policy

By offering PTOs, employers ensure workers can enjoy a certain degree of flexibility and autonomy at work. This not only leads to healthier employees but also reduces absenteeism and increases employee engagement at work. 

Additionally, since flexibility plays a crucial role in productivity, PTOs are a significant factor in creating an efficient work environment. However, for PTOs to take traction, they need to be guided by an effective policy that outlines every detail about the application and approval of PTOs.

All businesses require a PTO policy as part of their employee benefit plan. This policy represents a set of rules and regulations that govern everything that concerns sick leaves, vacation leaves, and other types of personal leave within an employee’s calendar year. 

A PTO policy is a map that a company follows religiously when approving employee leave requests. Without a PTO policy, it is impossible to run an effective and efficient PTO program that achieves the true purpose of paid time off from work. The policy is a company’s strategy for ensuring employees get the work-life balance they need.

To create a PTO policy, the company considers every possible factor that goes into a PTO program. This includes everything from leave duration to the types of leave requests that can be approved as PTO. While companies are encouraged to have a lot of flexibility when creating their policies, especially since they are blueprints for attracting and retaining employees, there must be some standard rule to follow when creating a PTO policy. These regulations vary according to the geographical location of the company.

On the federal level, there are no laws governing PTO policies except the Family and Medical Leave Act (FMLA) which mandates that employees get up to 12 weeks of unpaid leave for a sick relative. In fact, the Fair Labor Standards Act (FLSA) does not mandate payment for times an employee does not work. However, individual states tend to have more control over a company’s PTO policy.

As such, when creating a PTO policy, there are numerous things you need to keep in mind. This includes Federal factors, State factors, employees’ needs, and, of course, company needs.

10 Things To Keep In Mind When Creating A PTO Policy

Creating a PTO policy involves considering company size, operations, and employee tenure. However, it also requires that you keep the following in mind:

1. Allotted PTO Days

The first thing to consider when creating a PTO policy is how many days an employee is entitled to for a PTO. The challenge when it comes to setting the average PTO duration is every PTO plan is different, and no formula makes it easy to determine what the ‘perfect’ number of PTO days is. 

Additionally, the number of days that should be included in a PTO usually varies with several factors, including the employee’s length of service and the company’s state. However, on average, there are 143-26 PTO days offered in a year, depending on the employee’s length of service.

In the US, the average worker receives about 10 paid vacation days per year after only one year of service. Countries like China, Mexico, and the Philippines also offer about ten days of vacation a year. European countries, on the other hand, have a minimum of 20 days of paid leave in a year.

In essence, when determining how many vacation days to offer employees within a year, it is essential to decide if you would provide all employees an equal number of PTOs per year or vary the number with service length. Basing the allotment of PTO on how long an employee serves is a great way to appreciate existing employees for their loyalty to a company. It is also a great way to encourage employee retention, thereby reducing turnover rates.

2. Sticking To Legal Obligations

Creating a PTO policy requires compliance with the rules governing PTO policies in that region. Failure to adhere to these legal rules exposes the company to legal issues and penalties for non-compliance to the law. Additionally, refusal to honor legal obligations and due process in a PTO policy increases the risks of legal disputes or employee grievances that may lead to loss of resources and reputational damage.

Since PTO-related legal obligations vary with geographical location, it is essential to research the laws in the area for creating a PTO policy.

In the United States, there is no mandatory federal law governing a PTO policy. However, companies must honor the Family and Medical Leave Act (FMLA), which requires a 12-work-week break for the birth, adoption, or care of a child.

Other than Federal laws (if present), a company must comply with state laws. For example, California requires employers to provide paid sick leave to all employees, including part-time and temporary workers, at one hour for every 30 hours worked.

The laws vary by state, which makes it essential that executives and business owners are aware of the specific laws in their states.

3. PTO Eligibility

Which employees are going to be eligible for the PTO? Deciding what employees get access to certain PTOs is an essential part of creating a PTO policy. At this stage, it is time to decide if certain PTOs will be accessible to part-time and contract employees or would be restricted to full-time employees.

Specifying the eligibility criteria will ensure fairness and consistency when awarding and approving PTOs. It also acts as a retention management tool by building employee motivation. After all, if employees realize they will be eligible for certain PTOs if they work hard enough and remain engaged in an organization, they will be encouraged to perform better and stay with the organization long-term.

Additionally, specifying eligibility means a company can manage employee vacation or leave schedules. This ensures that all employees have accrued sufficient leave before taking extended time off, which prevents potential staffing issues.

4. What Strategy: Accrued or Lumpsum?

PTOs are usually handed out to employees using two methods- accrued or lump sum. 

The accrued allotment of PTO is a strategy where the employees are offered a set number of PTO per year. With this strategy, employees already know the number of PTO they can get annually. Doing so, they can usually plan personal events to fit the days their PTO falls on.

The accrual method works differently from the allotment method, as PTOs are typically awarded to employees monthly or quarterly. This method limits the number of PTOs an employee can access but spreads it evenly throughout the business year.

So, which option is better? 

Each strategy offers different benefits and shortcomings. It is, therefore, essential to evaluate the company to determine what best action to carry out

5. Carried Over Or Use-It-Or-Lose-It

When companies set PTOs, they intend to give employees time off. But what happens if not all employees decide to apply for time off? 

For some companies, PTO programs offer a fresh set of days off every year that can only be used within that year. These companies operate on a use-it-or-lose-it policy where any PTO not used within that year will be lost. As such, any unused vacation time will not be paid out during the termination of that employee’s employment.

Companies can choose to implement use-it-or-lose-it PTO policies for various reasons. One such reason is to manage vacation accrual liabilities and avoid potential financial burdens on the company. However, it is essential to note that not all states allow implementing the use-it-or-lose-it policy. States like California and Colorado in the United States ban this policy, but states like Illinois regulate it.

When companies do not utilize a use-it-or-lose-it policy, they often choose the accrual or “carry over” policy. This policy states that unused PTO within a year can be carried out to the following year.

Companies often implement this rule to retain talent by incentivizing employees to stay with the company over the long term. By allowing employees to carry over unused PTO from one year to the next, companies recognize that some individuals cannot take all their vacation days within a given year. 

This can be due to various reasons, such as workload, project demands, or personal circumstances. However, they choose to honor these reasons, showing employees that they care about them enough to ensure they do not lose their paid vacation time.

However, this goodwill can be abused as employees may choose to carry over much-unused vacation time. To solve this problem, companies often cap the number of days that can be carried over or specify a deadline for their usage to ensure proper workforce planning and scheduling.

6. Should PTO Be Mandatory?

For some employees, taking PTO is often a problem as they are worried about missing a project or returning to too much work due to work being compiled from the days they missed. One 2019 survey showed that about 55% of employees reported not using all their allotted time off.

While creating your PTO policy, it is essential to decide if you want to make PTO mandatory for all employees. Not only will this ensure employees do not hoard PTOs, but it also helps ensure employees enjoy a healthy work-life balance. 

However, it is also essential that forcing employees to take time off might interfere with their preferences, thereby hampering their flexibility and autonomy. It might also cause them to miss deadlines or tip the scale on their already-balanced work-life situation.

7. Talking To Managers

Managers are the intermediary between executives and employees. They oversee the tasks undertaken within an organization and ensure every operation is smooth sailing. In many cases, managers are also in charge of allocating PTOs.

While creating PTOs, it is essential to talk to and train managers on handling PTOs. Helping them understand how the policy works is a great way to ensure the program is sustainable and effective.

More importantly, talking to and training them ensures their concerns are considered during policy creation. 

8. Identifying Employee Needs

PTOs are tailored for employees, and this should suit employee needs. When a PTO policy does not fulfill the employees’ needs, it defeats the purpose of the PTO program.

Ask your employees questions. Take a survey to encourage them to share their concerns anonymously. This will help them be open about how they feel about time off, what they need their PTOs to be structured like, and what they expect from these PTOs.

Admittedly, it is pretty impossible to fulfill all employee demands and needs. However, a survey will make it easier to plan a PTO policy in the overall direction than the statistics from the survey point. So, companies can create a ‘win-win’ policy that favors both their and their employees’ needs.

9. Creating A Policy That Is Clear, Concise, and In Line With Company Culture

Company or organizational culture is the culture of an organization. It encompasses the shared workplace beliefs, values, attitudes, standards, purposes, and behaviors among employees within that organization.

A PTO policy should align with the company culture to reinforce the company’s values and principles regarding employee satisfaction and productivity. As such, when it is being created, it should be made with the company’s vision, mission, and values in mind while being built on its true purpose. More importantly, ensure your PTO policy is conveyed with clarity. 

10. Measuring The Effectiveness of Your PTO Policy

Creating a PTO policy isn’t enough. You must also ensure that it is effective, efficient, and sustainable. Point out metrics that can be used to measure the success of a PTO policy and create a team of executives that will constantly check these metrics.

Two women reviewing documents at a table
Without a PTO policy, companies risk employee burnout, reduced productivity, and increased turnover due to the lack of time off and work-life balance.

Creating A PTO Policy

PTO policy creation is not a process that should be handled with levity. Your PTO policy guides every aspect of your company’s PTO program, making it a map that shows your employee’s work-life balance. With a solid policy, there can be confusion, employee dissatisfaction, and potential legal issues.

When creating your company’s policy, it is essential to keep the ten factors mentioned above at the forefront of your mind. From ensuring you consider the number of vacation days to continuously measuring the policy’s success, every element plays a crucial role in creating an effective policy that favors both employees and the organization.

To complement your company’s efficient and effective PTO policy, you need an equally effective workforce. At iCreatives, we are dedicated to helping you build a team of efficient and talented workers. From sourcing talents to ensuring you land the right candidate, we have the skills and expertise necessary to help you make the right hiring decisions.

Are you ready to hire the right talents? Contact us at 855-427-3284 and we will get started immediately!

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